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Different types of dividend policies

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Discuss the different types of dividend policies that an organization may adopt. Discuss the factors that should determine this policy and the effect each have on shareholder wealth.

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The solution explains different types of dividend policies and effects on shareholder wealth.

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The different type of dividend policies would be

1. Residual dividend policy - In this policy, the company would pay out all income as dividends which is left after meeting the capital needs of the firm. In such a policy the dividend amount paid would vary year in year and would depend on the net income of the firm and the amount needed for capital expenditure. We know that changes in dividends have signaling effect in relation to how ...

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